The time has come to start the meeting to announce the consolidated financial results for the first quarter ended June 30th, 2019, for Hitachi Limited. The speakers are Mitsuaki Nishiyama, SVP and Executive Officer, CFO. Tomomi Kato, General Manager of the Financial Strategy Division. Yasuo Hirano, General Manager of the Corporate Brand Communications. Mr. Nishiyama, please.
I would like to give you the explanation regarding the first quarter fiscal year 2019 financial results. Please refer to the PowerPoint presentation. Please refer to page five, which is 1-2. Consolidated statement of the profit and loss. The first line is revenues. JPY 2.0325 trillion was recorded. 6% decline year-over-year was recorded. IT increased revenues, but other segments had a decline in revenues. For Hitachi Metals, Hitachi Chemical, semiconductors, smartphones, Automotive Systems, market impact was felt. The operating income, adjusted basis, is JPY 124.3 billion, a decline by 16%.
IT and life segment increased, but Hitachi Construction Machinery, Hitachi Metals, Hitachi Chemical recorded losses. EBIT was JPY 182.5 billion. A JPY 2 billion increase year-over-year was recorded. Majority capital sales was recorded. Hitachi Kokusai Electric has fallen away, but we have been able to maintain EBIT similar to this level. JPY 5 billion is the best for the first quarter. Next is the income attributable to us 14% year-over-year. This was also the highest record ever. In terms of the profit information, please refer to page 21. There is supplementary information I wish to share with you. On page five, I explained the profit and loss on a consolidated basis. This has been divided into the five sectors total and the listed subsidiaries total on page 21. Please refer to the operating income. The five sector total was JPY 74.6 billion, and the adjusted operating income margin was 6%.
Net income attributable to Hitachi Limited stockholders was JPY 103.8 billion. For five sectors total, this is a record. In terms of operating profit margin, 6% was highest ever for the first quarter ever. The net income attributable to Hitachi Limited stockholders, this number is also the highest ever. Market impact was felt at the listed subsidiaries, the adjusted operating income was JPY 49.7 billion, and net income was JPY 16.4 billion. Adjusted operating income declined by JPY 26 billion, and net income declined by JPY 13.4 billion. Operating income declined for the listed subsidiaries, which was very significant. Overall, operating income was negative. Non-controlling 100% business or the BUs, business units. For these businesses, efforts were very significant, having a direct contribution to the bottom line. Therefore, the overall structure has improved. Let's go back to the original PowerPoint presentation and refer to 1-3.
This is showing the factors affecting changes in the revenues and adjusted operating income. Left-hand side is the revenues. Impact of reorganization was JPY 77 billion. Selling of business, Hitachi Kokusai Electric deconsolidation impact was JPY 27 billion. Automotive system divestitures, such as Clarion impact, was JPY 50 billion. Total is JPY 77 billion negative impact on reorganization. Foreign exchange impact was negative JPY 25 billion. Actually, dollar was positive, but Euro and renminbi, strong yen impact is shown here. Others is JPY 31.3 billion negative. These are the negative impacts on revenues. For the Lumada business, there was increase, but there was a price decline as well as a revenues decline, others came in at - JPY 31.3 billion. Right-hand side is the adjusted operating income. Impact of reorganization was JPY 5 billion negative impact, foreign exchange, - JPY 2.5 billion. JPY 9.2 billion is the others. That brings us to JPY 131.3 billion, or 6.5%.
There was also investment for growth to the tune of JPY 7 billion increase. Inclusive of this, we ended at JPY 124.3 billion for the first quarter. Next page is the revenues by market, Japan and outside Japan. Please refer to the year-over-year column. Japan was 98%, outside Japan, 90%. There was significant decline outside Japan. There was a deconsolidation, such as Clarion and automotive system divestiture, and Kokusai Electric. It was included to the first quarter last year. If we make adjustment accordingly, then 98% will become 101%, and outside Japan, it should be 94%, Asia, 90%, China is 93%, ASEAN, India, other others, 86%, North America, 100% after adjustment, Europe would be 96%, and others, 95%. Total will be 97% instead of 94% with adjustment. We can see a significant decline in China as well as ASEAN, India, and other areas.
For ASEAN, Clarion business divestiture as well as automotive system was 67%. If we exclude the consolidation, 81%. Hitachi Metals, 79%, and Hitachi Construction Machinery is 82%. You can see that China saw a significant decline. For ASEAN, India, and other areas, Korea, Taiwan, and high tech related was 88% year-over-year. Hitachi Chemical, 80%, Hitachi Construction Machinery is 87%. You can see that there was decline in China as well as in Asia. A significant decline in revenues were recorded. Please refer to the next page, which is the balance sheet and the cash flows. At the very top, total assets was JPY 9.732.7 trillion, compared to March 31st increase by JPY 106.1 billion. IFRS 16 has had an impact on balance impact. There have been changes in accounting.
In the beginning of the term, impact was JPY 220 billion asset increase was recorded, interest-bearing debt to the tune of JPY 200 billion also increased on the liability side. Receivables decreased. Total was an increase of JPY 106.1 billion. Cash conversion cycle is shown here to be 66.4 days. That is a two point nine days decrease from change from March 31st, 2019. Debt ratio was 0.31 times, and stockholders' equity ratio was 33.8%. Cash flows from operating activities is JPY 878.8 billion, which was a decline of JPY 55.4 billion. Last year, energies, the advanced payments have gone away, and IEP project has run its course, closing to the end. These two factors have impacted the decline in cash flows from operating activities. Cash flows from investing activities was JPY 105.1 billion, similar to previous year. There have been stock acquisition as well as capital reduction having an impact.
The cash flows from investing activities was maintained at the level of last year. Free cash flow declined by JPY 56.6 billion, at JPY 26.2 billion. Next page onward, I would like to talk about the segment information. First of all, starting with IT. 3% increase in revenues was recorded. Expansion of the system integration business as well as sales increase of storage and PC service in Japan have contributed to the 3% increase in revenues. With the increase in revenues, operating income increased by JPY 5.1 billion year-over-year. This also was impacted by the strategic investment for expansion of the digital solutions business. Nevertheless, we were able to record an increase of JPY 5.1 billion. EBIT increased by JPY 13.6 billion. This is an increase in adjusted operating income gains of selling the land of former production bases. Energy.
The decrease in revenues are due to the business transfer of the power receiving and transforming facilities business for industrial field, and decrease of large-scale projects in power generation solutions. The year-over-year change is 88%. Adjusted operating income declined as well. Next page is industry. There was impact from sales decrease of industrial products. A slight decline was recorded, even though sales increase in air condition system business for industrial field was positive, and operating income declined because of a decrease in revenues. Mobility was slight decline as well. In the railway system, the IET in the U.K. has run its course in terms of sales generation. In Japan as well as in Italy, the railway systems revenues have increased. There was also impact of foreign exchange for railway business as well as building business, therefore, a slight decline at 99%.
Adjusted operating income increased by JPY 2.2 billion. This is because of the cost reduction as well as profitability improvement in the railway systems business. EBIT increased by JPY 26.3 billion. This is because of the gains by selling a part of Agility Trains West stocks. Page, please. Smart Life segment. There was negative impact of the divestitures on Automotive Systems business, around JPY 50 billion of Clarion, having a negative impact for adjusted operating income improvement of JPY 2.8 billion. Contributing factors include profitability improvement in home appliance businesses due to cost reduction. Hitachi High-Technologies. Sales increased for semiconductor processing equipment in the U.S. However, there was a negative impact of sales decrease of liquid crystal display exposure systems at 93% year-over-year.
Because of the decrease in revenues as well as increase of R&D expenditures, led to a decline of JPY 2.5 billion in terms of adjusted operating income. Next, Hitachi Construction Machinery. Decline of 2% year-over-year. Most of it is because of the impact of the foreign exchange. The adjusted operating income was -JPY 4.6 billion. Increase in indirect expenses was the negative impact here. Therefore, a decline by JPY 4.6 billion year-over-year. Hitachi Metals. Revenues was at 90% year-over-year. Significant decline was recorded. This is because of decreasing demand for automobiles as well as semiconductor and FA. In addition, there was a negative impact of the business transfer of the aluminum wheels business services. Therefore, revenues declined by 10%. Because of the decrease in revenues as well as revaluation loss on inventories, has led to the adjusted operating income deterioration by JPY 10.4 billion. Next is Hitachi Chemical.
Revenues were at 92% level because of the decrease in demand for semiconductor and automobiles. In line with the decline in revenues, the adjusted operating income declined by JPY 4.2 billion. Next page, others. You can see that the adjusted operating income has declined. This is because of the negative impact of deconsolidation of Hitachi Kokusai Electric, corporate items and elimination. EBIT decreased by JPY 20.1 billion. This is because of the absence of gains by selling Hitachi Kokusai Electric stock recorded in the previous fiscal year. That is the reason why profit has declined. For Social Innovation Business core businesses, overall, have seen improvement in profit. The four listed subsidiaries have been impacted by the negative market. Overall was a profit decline. Next, page 1-11 topics, progress of Lumada business. In the first quarter, Lumada business revenue was JPY 251 billion, which was 13% increase year-over-year.
Public sector and the social infrastructure-related business increased. Especially Lumada core business, we saw a 34% increase year-over-year in public and government-related social infrastructure. We increased our collaborative business and fintech, blockchain-related businesses. We provided new solutions. In mobility, the rolling stock and the signal maintenance and the escalator, elevators maintenance business, and others, Lumada is being applied to more businesses now. On the second lower half, you can see the topics of Lumada. Rolled out vehicle-sharing service for Thailand's logistics sector with Hitachi Transport System. We also started a partnership with Virtusa Corporation in America to provide AI-based solutions for financial field. We have a dedicated team on both sides to develop this business. In expanding the co-creation business utilizing digital technology, we have two examples.
We started proof of concept of a new digital ticketing solutions for the public transportation operator in Italy, and also received an order from Toa Oil for high-temperature parts management platform for gas turbines. Next page, please, slide one-12. First, the progress of structural reforms in automotive systems business. We agreed to acquire Chassis Brakes International to create an industry leader in automotive safety solutions. It is scheduled to be completed by the end of 2019. We agreed to transfer shares issued by Palnet company, which engages in rental business of cargo handling materials, pallets, to Hitachi Transport System. In strengthening of management base of railway systems businesses, as I mentioned earlier, we sold a part of shares of Agility Trains West Limited additionally. Of the 70%, we sold 30% in 2018, and in the first quarter, in April, we sold additional 15%. Now we have 25%.
Further expansion of global business in mobility sector. We received an order for delivery of elevators, escalators, and moving sidewalks for the Suvarnabhumi International Airport, received an order for the delivery of elevators for large-scale office buildings in India, Hyderabad, received an order from Trenitalia in Italy for high-speed train sets with Bombardier Transportation in June. Next page, 2-1. You can see the outlook for our FY 2019. This was announced on April 26, we kept this unchanged. Revenues, JPY 9 trillion, adjusted operating income, JPY 765 billion, 8.5%. Net income attributable to Hitachi Limited stockholders, JPY 435 billion. This remains unchanged. Segment figures have also remained unchanged. That completes my explanation. Thank you.
We will now open the floor for Q&A. Please wait for the microphone to be brought to you. The floor is now open.
Question. Thank you very much for the explanation. Regarding page 21 that has been provided, you have made the comparison between five sectors total and listed subsidiaries total. This is very easy to understand. Thank you very much. Regarding the operating income for the first quarter, is the JPY 124.6 billion. What was the level that was compared to the outlook? How does JPY 74.6 billion compare? This JPY 49.7 billion, how does it compare according to the outlook and forecast?
Answer. By quarter, we are not giving detailed explanation outside, but overall, for the listed subsidiaries, JPY 5 billion was underperformance compared to plan because of Hitachi Metals as well as Hitachi Chemical overall underperformed by JPY 5 billion against the plan. For five sectors total, overall for each of the sectors, there were improvements made. Total was JPY 5 billion improvement. Centering on IT, improvements have been made. Other sectors also improved. Total was JPY 5 billion. Altogether, we are proceeding according to plan.
Question. You said that IT was particularly strong, 13% increase was shown, and annual 4% decline is the plan. It seems that you are outperforming in this area. ATM decline was factored in, but in the first quarter, what were the areas improved? Are there improvements made for the businesses that looked unfavorable? Please give supplemental information.
Answer, for the first quarter, the difficulties and challenges have been a factor in ATM is continuing to be difficult. For financial business, SI in financial. Last fiscal year, we had major projects which have run its course now. Therefore, major projects for financial sector is decreasing. On the other hand, in the other solutions for financial business, is increasing in terms of demand. For example, fintech as well as AI for financial services, as well as labor saving and digital measures have strong demand.
Public sector as well as industry areas have strong demand as well from business, SI business. Therefore, overall is outperforming the plan. Even though financial sector business has declined slightly, it is more than offsetting the decline.
Thank you. Question. I have three questions. First, Agility Trains sales. What part of your stake, how much stake did you sell and how much do you have left? In automotive, because of the reorganization, you've been suffering from operating income decline. It seems like for a decline in revenue, your operating profit is fairly well. Will this improvement start, continue in the first half? Third point, South Africa. If there are any progress, please let me know. The construction seems to be delaying, or the operation seems to be suspended according to some mass media reports. If there's anything you could update us on?
Answer. First, Agility Trains West. This is the train operation company. It's not our rolling stock and Shinano Railway, it is the train operation company's stock. We originally had 70%. In FY 2018, we sold 30%. This time in the first quarter, we sold additional 15%. We now have 25% left. For what price? We may have some additional sales or Agility Trains East. We have stake in Agility Trains East as well. Once the train operation starts, the stake will decrease, reduced. The price may impact the selling price at that point in the future, so I would like to refrain from mentioning the price. Your next question on whether the five sectors' favorable condition continues into the second half. Materials business is difficult, but the five sectors centering on IT is doing well.
Whether this will continue till later in the year. Solutions business is strong, especially according to BOJ's Tankan on July 1st. The software investment in the capital expenditure, the survey result is 12.9% up year-on-year, and we feel that that is actually the case. Labor saving in manufacturing and non-manufacturing sector, labor saving is focused and the production streamlining and quality assurance and financial institutions are using fintech and AI more. The traditional SI business, ERP-related package software. The SI business related to that is seeing strong demand. In IT sector and industrial sector, we're seeing this demand. On the other hand, products business environment is difficult. With the strong solutions business, we have a tailwind with short delivery timing. We will accumulate these short delivery timing projects products. Now, the South African project.
The arbitration progress, we have the confidentiality agreement, so I cannot comment on that. Regarding the project cost, we are constantly checking the situation, if we see any changes or fluctuations, we will review the cost and provisioning of reserves. We've been doing this. There's nothing to update on the changes in the negotiation.
Question. Additional comment on automotive. On page 26, life segment information is disclosed.
Page 26. Revenues, 78%. This seems like a big dip from last year, this is mainly the Clarion business divestiture. Excluding that factor, China and North America, there's a revenue decline, sales decline, it is only a slight decline. On the other hand, operating income is -JPY 300 million. It seems like a decline, excluding the business divestiture, we are conducting cost reduction. The operating income increased.
In real terms, it is increase in operating income. Thank you. One more additional point. Agility Trains. This is not the rolling stock, but it's a rolling stock lease company. Not operation, but lease company.
Question. I have one question. It overlaps with the other question before me. Regarding automotive systems, in the fourth quarter of last year, I understand that the situation has improved. In the first quarter, if we look at the operating profit margin, it is 3% or even less. It has reverted back to the previous state. What happened after the improvement in the fourth quarter? How did the first quarter fare vis-à-vis the plan, as well as the second quarter and onward? What is the outlook?
Answer. The first quarter revenues tend to be small from the beginning.
It is true that we achieved 7.9% in the fourth quarter of 2018. It is not an abnormality that pushed down in the first quarter. It is seasonal factor. On a quarter-by-quarter basis, we can see improvement in this business. There is still room for reducing costs further. Loss cost reduction is not enough yet. All costs, direct material, indirect costs, must be reduced further. We shall continue these activities to reduce cost. Productivity base in North America, there is a significant turnover of people. This problem is already behind us, but there is still loss cost incurred in other areas. We shall continue to reduce loss cost for this fiscal year and onward.
Additional question. You said, well, we talked about the comparison with plan, that there was an upside of JPY 5 billion. There have been improvements in various segments.
For AMS, we can see that plan, it is improving against the plan. That was additional comment.
Thank you. Question: I have two main questions. First, in your management policy, you talked about capital allocation, JPY 4 trillion funding side allocation and allocation. On a funding, fund procurement, three years operating cash flow JPY 2.5 trillion and bank borrowing JPY 1 trillion and asset sales JPY 0.9 trillion. Allocation: M&A JPY 2.5 trillion, CapEx JPY 1.6 trillion, and shareholder return JPY 0.4 trillion. Is this breakdown roughly correct?
Answer: In the medium-term plan announcement and in the sector IR briefing, we've been mentioning these numbers, and it has not changed much. Operating cash flow JPY 2.5 trillion + asset sale and increase in bank borrowing. That's JPY 2.2 trillion-JPY 2.5 trillion. We use that for growth investment and M&A. This structure has not changed.
Based on that, my question is operating cash flow. The current quarter is seasonally small, but the operating cash flow does not seem to be large. JPY 2.5 trillion divided by three, you will need a certain amount per year. If this progresses, which item will improve? Do you have any outlook?
Answer. In the previous medium-term plan, the operating cash flow margin against the operating margin was low. The inventory increase was a big factor. We thought the ratio was too low. This operating cash flow margin is now coming close to operating margin, operating profit margin, to secure JPY 2.5 trillion. However, in the current quarter, in the first quarter, Hitachi Construction Machinery inventory increased, and Hitachi Construction Machinery and Hitachi Metals, we reduced the procurement and so payable decreased, and so it seems like it worsened year-over-year, but now it's being normalized. That's how we want to secure the level. In parallel, we are also selling assets. With asset sales, we want to secure a source for investment.
Thank you. Question. In the capital allocation, if you are to focus on shareholder return compared to the previous three year, in the next three years, it seems to be increasing. Based on the assumption that your plan this year is comparable to last year, and if dividend remains unchanged, it may fall short against the progress for the next three years. Which point will be your focus in your increase in shareholder return?
Answer. As I've said before, shareholder return, we do not give numbers on shareholder return. CapEx and shareholder return, JPY 1.8 trillion-JPY 2 trillion is our plan. Growth investment and investment capacity, capability, or firepower will be considered and increase our shareholder return along with the increase in profit. Compared to the 2018 medium-term plan, we want to increase the shareholder return going forward.
Any other questions?
Thank you very much for the explanation. I have three questions. The first question is confirmation regarding numbers. In first quarter, growth investment was JPY 7 billion. Is it all IT? Please give me the breakdown.
Well, actually, it is varied. The breakdown of JPY 7 billion will be provided to half, or JPY 3 billion is IT. This is the most significant portion. Others include JPY 1 billion for mobility, and this is subsidiaries, JPY 1 billion, and industry, around JPY 0.5 billion. That is the basic breakdown. To your second point, regarding South Africa arbitration, we mentioned that if there is going to be change in cost, it will be reflected accordingly. That was the comment made. For this project, is the reserves increasing? You said that if there is going to be increase in cost, are you saying that provisions will increase, reserves will increase? If that is the case, please elaborate.
There is no significant increase, we are making reviews accordingly. As already mentioned, for major projects there is no significant change. In terms of foreign exchange as well as cost will be taken into consideration to make appropriate adjustments.
Third question is regarding ABB, a power grid business. For due diligence, have you made any progress? Please comment. I understand that there is about 200 or 100 bases altogether. One for sales. As well as, are there any surprises? Please elaborate.
For ABB, there are many bases. Major bases we have visited and made a confirmation. Regarding post-merger integration, as well as the process for a carve-out are being worked on by the two parties, and everything is proceeding basically according to plan.
Question. I have two questions, which are related. First question. First quarter in total was in line with the plan, but your direction in the Second quarter, is it progressing like First quarter or not? Fortunately or unfortunately, you are weak in SA, so will this help you? Up to Second quarter last year was very strong. At this pace, last year was operating income exceeding JPY 190 billion. On Q on Q, if it's the same pace on Y on Y, maybe 15% down. Is that the momentum you're expecting? If you could first talk about the momentum.
Answer. Second quarter, five sectors and the listed subsidiaries, both will be having the same business environment as the first quarter. Products, especially materials business, recovery is not foreseen yet. The second quarter will still be difficult, and that is the assumption for our measures of reducing fixed costs. On the other hand, solutions business, demand is strong. Looking at the first quarter's demand is declining in Hitachi Metals and Hitachi Chemical. For five sectors, the demand is robust. The orders is robust. The overall orders in Japan is 103%, and overseas is 99% year-over-year. Overall, 101% year-on-year. Now for further analysis, the Hitachi Kokusai, the divestiture and AMS, Clarion sales, and foreign exchange, JPY 25 billion. If we exclude these factors and correct it, both Japan and overseas was 106% year-on-year. That's the orders. Therefore, materials business is difficult.
In other business, five sectors, orders are strong. Volume is increasing, especially in IT. On a sector-by-sector basis, on a year-on-year basis, of the 106, IT is 110, and energy is 100 flat. Industry is 120% year-on-year. Mobility, 152 year-on-year. This is railway, so there are some long-term businesses. In life, smart life, 101. Overall, we see very firm situation. In the second quarter, we think the trend will be similar to the first quarter. Regarding the five sectors, overall, we think the situation is firm and robust.
Question. My second question is, this time you did not revise your full-year forecast. What is your thinking behind it? In the first half, operating income may be 10% or so decline. In order to achieve the full-year plan, the second half will have to be 10% up. It's not visible enough in the first quarter. It just ended not revising, or do you expect some positive factors expecting in the second half? You have big domestic ratio, and the consumption tax will be raised in October, so you may not have an impact on your home appliance business. Since last time around, after the April production declined. It will not be easy for you. The reason you did not revise your full-year forecast.
Answer. Products and materials business are very unforeseeable. Semiconductor in some regions or some clients.
We think investment may recover, but we don't know when that will happen. Therefore, like first quarter, material business will remain difficult. That is our assumption. That's the assumption we will keep. As I said earlier, solutions business and other businesses are strong. Products businesses, as you mentioned earlier, may be impacted somewhat by the consumption tax. In manufacturing sector, there may be some production labor saving to overcome the labor shortage. In the financial sector, there will be some investment for saving labor. We have two things, products and services. The negative impacts and positive impacts will be quantified in the second quarter. We will scrutinize further. That's why we did not reveal the forecast.
Question. It's not that you should not change it, have good traction with IT, and that's why you are confident and not changed?
Yes.
In the water flow chart, looking at the first quarter, the impact of the materials, raw material cost, is not shown. On the first quarter, if you could talk about that?
Answer. Raw material cost, there are ups and downs, but overall, in the first quarter, JPY 3 billion negative impact from raw material cost. With cost reduction, we completely offset that.
Question. Not just raw materials, but you have quite some volume of storage and hardware. Looking at other competitors, memory and electronic materials is declining, enjoying some impact from that. What about you?
Answer. Cost reduction. The JPY 9.2 billion - in the waterfall chart, let me give you the breakdown. Revenue contribution and improvement in operating income is JPY 4.5 billion. The other revenue decline is JPY 6.6 billion negative. Price down storage, Automotive Systems, that's JPY 10.5 billion negative. Labor cost and depreciation increase, that's a negative impact of JPY 20 billion. On the other hand, cost reduction was JPY 23.3 billion +. That's to JPY 9.2 billion. In the JPY 23.3 billion, the increase in raw material, the JPY 3 billion is included. Of course, with components, there were some positive factors. That's JPY 23.3 billion.
Thank you. Any other questions?
Question. I have two questions. You have provided information regarding the five sectors as well as the listed subsidiaries. I'm sure that listed subsidiaries cannot be controlled completely, but the materials companies are struggling. We've only seen announcements in a limited manner, but it seems that for your materials company, it seems that it is not performing well. There are rumors that you will be selling some of these businesses. What is your elaboration on this?
Answer. There is no governance issues. For materials, we have two companies, Hitachi Metals as well as Hitachi Chemical. For 2018, from the latter half, the market environment has deteriorated significantly. It is yet to recover. First quarter remained the same, therefore, the environment remains difficult. For each of these companies, whether it be Hitachi Chemical as well as Hitachi Metals and Chemical are reducing costs. On part of Hitachi Metals, furthermore, the market remains difficult. Cost reduction measures will be stepped up, and structural reform measures will be implemented. We have decided to withdraw from low-profit businesses. Measures have already been implemented. On our part, we are confirming the details thereof. I'd like to emphasize that the market environment remains very difficult, therefore, we are requesting further acceleration of these measures.
Question. The chemical companies with wafer business is significantly impacted by the semiconductor cycle. If the semiconductor cycle is declining, the cost reduction has been made from the past. Strategically, compared to competitors and rivals, it seems that you are behind according to the results. Please comment further.
Answer.
I hope you can engage in discussions with these listed companies. We are looking at short-term measures as well as mid to long-term strategies. We are conducting reviews of these plans and strategies. For the time being, cost reduction acceleration will be necessary, and the scale of cost reduction must be enhanced further. We are checking on these measures. Once we have a recovery, we hope that our profitability can be ensured in the recovery phase. That is the reason why we have to accelerate the measures today. We are confirming the promotion of such measures.
Question number two is regarding IT solutions. The environment is very good for the listed companies. About one concern that is being raised is the consumption tax as well as the Olympic Games.
There is perhaps a front-loading of the business, so there may be a need to be more cautious in the second half. Please elaborate.
Answer. Obviously, the consumption tax will have an impact, but we don't know how this is going to manifest in terms of negative impact. Therefore, as I have already mentioned, new areas as well as labor-saving measures, demand is very strong. Therefore, we have to ensure the delivery of resources, so short delivery products can be provided. We believe that incremental cost factors can be absorbed in this process.
Thank you.
Our time is running out, so we will take the last question. With that, we will close today's briefing. Thank you very much.